ato logo

Section 2 - What if a CFC or CFT receives a dividend from another CFC?

Last updated 4 December 2006

Non-portfolio dividends paid by a listed country company are always non-assessable non-exempt income. Non-portfolio dividends paid by an unlisted country company to a resident company, however, are non-assessable non-exempt income only in very limited circumstances It is possible therefore that a resident company with an interest in an unlisted country company held through a listed country company may try to minimise Australian tax by arranging for the dividends from the unlisted country company to flow back to Australia through the listed country company.

This could be effective if the unlisted country company could distribute its low-taxed profits as dividends to a listed country company which taxed those dividends at very low rates, and if the listed country company in turn distributes those non-portfolio dividends to its Australian parent company free of tax. There are rules in section 458 to prevent this form of tax avoidance.

Non-portfolio dividends

Paid to a listed country CFC

The general rule is that section 458 will include a share of a dividend in your assessable income where a non-portfolio dividend is paid from an unlisted country CFC to a listed country CFC and you are an attributable taxpayer in relation to both CFCs. To work out the amount to include in your assessable income, you will need to know your attribution percentage in the listed country CFC receiving the dividend.

There is an exception to the general rule if a listed country taxes the dividend at its normal company tax rate. In this case, the dividend will not be attributed to you. To qualify for the exemption the dividend must be subject to tax in the listed country at the same rate as, or at a higher rate than, the rate of tax that applies to non-dividend income of a company resident in that country. The tax law of the listed country should not provide any credit, rebate or other concession in respect of the dividend other than for foreign tax payable in another country.

The dividend will also qualify for the exemption if it was exempt from tax in a broad-exemption listed country because it was paid from income previously attributed in that country under an accruals tax law and it was subject to tax at or above the country's normal company tax rate.

This image illustrates the situation described above.

Unlisted country CFC
listed country CFC

Resident attributable taxpayer to unlisted country CFC or listed country CFC

Include in assessable income the attribution percentage of the dividend unless the dividend is subject to tax in the listed country at the country's normal company tax rate.

The attributable dividend is reduced by the exempting profits percentage of the dividend if:

  • you are a resident company with a non-portfolio interest in both CFCs at the time the dividend is paid
  • the CFC receiving the dividend has a non-portfolio interest in the paying CFC
  • both CFCs are in a non-portfolio group with you - that is, each company in the group must have a non-portfolio interest in the company in the tier immediately below it.

Apply your attribution account percentage in the CFC that received the dividend to the balance of the dividend. Take away from this amount an attribution debit or a FIF attribution debit that arose at the time the dividend was paid.

You must include the remaining amount in your assessable income.

Example 13: Reduction for exempting profits

Ausco has an interest of 75% in a listed country subsidiary, CFC1. CFC1 has a wholly owned subsidiary, CFC2, in an unlisted country.

On 1 November 2003, CFC2 paid a non-portfolio dividend of $15,000 from its distributable profits. The distributable profits on that date comprised $20,000 exempting profits and $10,000 other profits. None of these profits had been attributed to Ausco. The dividend was not taxed in the listed country at its normal company tax rate.

The amount that Ausco included in its assessable income for 2003-04 is worked out as follows:

Dividend paid by CFC2


deduct the exempting profits part of the dividend


20,000 ÷ 30,000 × $15,000




Ausco's interest in CFC1
75% of $5,000


$3,750 was included in assessable income. This amount is increased by the amount of a foreign tax credit that can be claimed under section 160AFCC.

End of example


Example 14: Reduction for an attribution debit

The facts are the same as in the previous example except that Ausco was attributed a part of the income of CFC2 and had an attribution surplus of $1,000 for CFC2 at the time the dividend was paid.

In this case, the amount of $3,750 that was to be included in Ausco's assessable income is further reduced by the attribution debit that arose in the attribution account for CFC2 when CFC2 paid the dividend.

Since the attribution debit cannot be more than the attribution surplus, the attribution debit was the lesser of:

  • the attribution surplus - $1,000, or
  • Ausco's attribution account interest in the dividend paid by CFC2 multiplied by the dividend that was not paid out of exempting profits - that is:
    75% x $5,000 = $3,750

This means that the attribution debit was $1,000. The amount included in the assessable income of Ausco will be:

the amount in Example 13


deduct attribution debit


amount included in assessable income


This amount is increased by the amount of a foreign tax credit that can be claimed under section 160AFCC.

End of example

Paid to an entity other than a CFC

Similar rules apply where an unlisted country CFC pays a dividend to:

  • a controlled foreign trust (CFT)
  • a partnership of which a CFC or a CFT is a partner
  • an Australian trust of which a CFC or a CFT is a beneficiary or
  • a partnership or Australian trust from which a CFC (or a CFT) benefits through interests in interposed entities.

The rules apply if:

  • the dividend paid by the unlisted country CFC would have been a non-portfolio dividend if it had been paid to a company instead of the partnership or trust and
  • the resident taxpayer was an attributable taxpayer for both the CFC that paid the dividend, and the CFC or CFT that received the dividend.

Paid to another unlisted country CFC

In general, section 458 does not apply to a dividend paid to an unlisted country CFC unless the payment of the dividend was part of a dividend stripping scheme or a scheme of that nature.